Spoilage Resulting from an Internal Failure in a Process Cost System Using an Average Cost Flow Assumption.

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Spoilage Resulting from an Internal Failure in a Process Cost System Using an Average Cost Flow Assumption. Nimblerod Company sells a single product that is manufactured in two departments, Cutting and Assembling. Units of the product are started in the Cutting Department and then transferred to the Assembling Department, where they are completed. Units are inspected at the 90% stage of completion in the Cutting Department and at the end of the production process in the Assembling Department. Materials are added before inspection in both departments. Units of product that are spoiled in the Cutting Department have no sal¬ vage value; however, units found to be spoiled at the end of the Assembling Department process have a sal¬ vage value of $5 each. Good units are transferred from the Assembling Department to Finished Goods Inventory at cost, and spoiled units are transferred to Spoiled Goods Inventory at their salvage value. The unre¬ coverable cost of spoilage in both departments is viewed by management as an internal failure cost and charged to Factory Overhead Control. Data related to manufacturing operations during April are: LO6 Cutting Assembling Units in beginninginventory. 5,000 4,000 Units started in process in Cutting Department thisperiod. 20,000 Units transferred from Cutting Department to Assembling Department. 18,000 18,000 Units transferred to Finished Goods Inventory thisperiod. 17,000 Units spoiled in process thisperiod. 3,000 1,000 Units in ending inventory:

Cutting Department (100% materials, 60% labor and overhead). 4,000 Assembling Department (80% materials, 20% labor and overhead). 4,000 Cost in beginning inventory:

Cost from precedingdepartment. $ 10,900 Materials. $ 1,260 38,028 Labor. 789 3,356 Factoryoverhead. 1,789 5,034 Cost added during the current period:

Materials. 36,240 164,432 Labor. 10,761 15,444 Factoryoverhead. 21,311 23,166 Required:

(1) Assuming the company uses a process cost system with average costing, prepare a cost of production report for each department for April. 1 j •

(2) Assuming the company maintains a separate work in process account for each production department, pre¬ pare the appropriate general journal entries to record the transfer of cost out of each department during April.

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Cost Accounting

ISBN: 9780538828079

11th Edition

Authors: Lawrence H. Hammer, William K. Carter, Milton F. Usry

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